Monday, December 21, 2015

We are glad to inform you that our Hidden Gem stock of Nov'14 - Control Print Ltd (BSE Code: 522295) has achieved its target today giving absolute returns of 109% to our Hidden Gems members in period of 12 months. Our team suggested Buy on Control Print Ltd at price of Rs. 243.90 on 30 Nov'14 with a target price of Rs. 510. As target is achieved, we suggest our members to continue to hold the stock as we believe company will continue to perform well in coming quarters like that of previous quarters.​Company has declared its Sept'15 quarter results on 31st Oct'15, sales​ of the company have grown by 28.42% to 36.69 crores. With continuous control on operating expenses, the EBITDA margins of the company have expanded to 29.41% from 22.95% and the EBITDA has grown by 64.59% to 10.79 crores, the net profit of the company is up by 40.65% to 7.29 crores.Control Print has recently declared issue of bonus share. Company
has decided to issue bonus shares to existing share holders of the company in
the ratio of 1:2 i.e. for every Two (2)
Equity Shares held in the Company One (1) Equity Share shall be allotted.The board of Directors of Control Print Ltd in its board meeting
held on November 17, 2015, has considered and approved the following:1. Issue of fully paid-up Equity Shares as “Bonus Shares” to the existing
shareholders of the Company in the ratio of 1:2 i.e. for every Two (2)
Equity Shares held in the Company One (1) Equity Share shall be allotted.2. Draft Notice of Postal Ballot for seeking shareholder’s approval inter-alia
to increase the Authorized Share Capital of the Company from Rs. 15 Crore
comprising of 1,50,00,000 Equity Shares of Rs. 10/- each to Rs. 20 Crore
comprising of 2,00,00,000 Equity Shares of Rs. 10/- each, consequent amendment
to the Capital Clause of Memorandum of Association of the Company and also
proposed issue of Bonus Equity Shares.Issue of Bonus share is a
good move by company which indicates that company is Investor friendly and also
shows the confidence of management in future growth outlook of business.
Company has not declared the record date, hence investors who have bought or
buying this stock are eligible for bonus share. Share price will be adjusted
post allotment of bonus share, that means if you are holding 10 shares as per
current price of Rs. 510, post bonus share allotment, your share holding will
increase to 15 shares and share price will be adjusted to Rs. 340.Below is the summary of Control Print Ltd shared by our team under Hidden Gem stock recommendation - Nov'14

1. Company
Background:

Control Print Limited (CPL) is an ISO 9001:2008 certified company
based in Mumbai (Maharashtra), provides industrial grade coding and marking
solutions to various industries such as pharmaceuticals, personal care, food
and beverages, metal, agrochemical and extrusion products, such as pipes and
wires. The company specializes in providing solutions for printing variable information
such as batch numbers, manufacturing and expiry dates, maximum retail price,
serial number, special markings, logos, company/brand name, and barcodes.

Control Print has
now over 2 decades of experience in the Coding and Marking Industry and has
partnered with leading global players technologically. The
company had entered into a joint venture with Markem Corporation, U.S., to
manufacture and market its products in India. Markem Corporation is a renowned
coding and marking company having worldwide operations and is the undisputed
world leader in Hot Ink Roll Technology for coding equipments. Along with
Markem Corporation, Marconi Data Systems, USA, Bv Korthofah, the Netherlands
and Ostling Metal Marking System GMBH, Germany are also among the global
partners of CPL. During FY12, Company has acquired "Liberty Chemicals
Private Limited" as its wholly owned subsidiary.

The company
manufactures and trades the printing machines required for the above
applications, provides consumables such as ink and spares and also provides
annual maintenance contract (AMC) services for the same.

The company
manufactures the printing machines under licences from various companies such
as KBA-Metronic AG (Germany) for continuous inkjet (CIJ) printers under the
alpha JET brand, and Sisma (Italy) for large character inkjet printer. The
company has two manufacturing and assembling facilities, in Vasai (Maharashtra)
and Nala garh (Himachal Pradesh). The company also trades laser printers, which
it directly imports from Macsa ID, SA (Spain).

Company
has also set up a laboratory-cum-demonstration unit at Marol, Andheri. Earlier,
CPL had technical tie up with the world-leader Avery Dennison, US, a
Fortune-500 company.

Company’s Product Range:

Videojet Range of Small Character Ink Jet
Printers

Marsh Range of Large Character Ink Jet
Printers

Kortho Hot Quickcoders

Conprint Range of Wet Ink Contact Coders

Ostling Range of
Metal Marking Systems

These
solutions work on-line at high speed and offer the most economical running
cost.

Technology Partners:

1. KBA-Metronic
Aktiengesellschaft is a medium-size technology company which specializes in the
development, design, production, marketing and service of printing and coding
systems. Metronic AG is also a leader in patented innovation.

The company was
founded in 1972. It is a subsidiary of Euro 2.7 billion Koenig & Bauer AG
(KBA), the world’s third largest print equipment manufacturer, and is located
in Veitshöchheim in the Lower Franconia region of Germany.

The innovative
product portfolio from KBA-Metronic AG offers customers around the world a
choice of practical and highly flexible complete solutions. Excellent product
quality and the excellent standard of our extensive services make KBA-Metronic
AG a partner which industrial customers can depend on. The entire company has
been certified to DIN EN ISO 9001:2000.

2. Macsa has an
impressive history with more than 90 years of experience, and to know its
history, one must go back to 1908 when the company Framun located in Manresa
(Barcelona) set up the manufacture of rubber stamps. A few years later, this
company started to distribute machinery and consumables for rubber stamp
manufacturers all over Spain

Due to the growing
demand for industrial coding and marking, a line which has always been part of
Framun's range of products, in 1983 Macsa was created as a completely
independent company to focus on finding solutions for the increasingly
sophisticated and complex problems posed by laser industrial coding and marking
customers.

The need to satisfy
the end consumer, along with the international regulations and the latest
technological advances in distribution and logistics, created the need for all
products that are packaged, especially in the food sector, to contain an
increasing amount of clearly written variable information

Thus
Macsa, has for almost a century been a fore runner in innovation in laser
technology. Currently with the most superior technology, Masca is the market
leader in this market.

Manufacturing Facilities:

Control Print
Limited has two modern manufacturing centers located at Vasai, on the outskirts
of Mumbai, and Nalagarh, Himachal Pradesh. Aesthetically designed and fully
equipped, these facilities are complete with all the necessary support tools,
services and amenities required to ensure the highest quality of products and
services consistently.

In addition to
manufacturing capabilities each center has comprehensive service training
facilities for external as well as internal customers.

Vasai – Spanning over 8000sq
ft, the Vasai centre is a hub for assembly and manufacture of the entire
Control Print product range. The entire range of Control Print inks is also
manufactured at this facility.

Nalagarh – Company’s additional
facility at Nalagarh commenced production in 2008. This new facility was a step
towards fortifying company’s expansion plans enabling a large increase in
overall manufacturing and assembly capacity for all foreseeable future
requirements. Spanning over 20,000 sq ft this facility is capable of assembly
and manufacture of not only our entire product range but also for manufacturing
of components and entire sub-assemblies required for company’s products
enabling further improvements in quality control and cost efficiencies. There
is also an additional fluids facility capable of manufacturing the entire range
of solvents and inkrolls.Guwahati
– Control Print currently has its modern production
facilities located at Vasai and Nalagarh, while the manufacturing unit at
Guwahati is expected to be commissioned soon.The necessary statutory approvals
for commencement of construction have been received early this year and the
construction work for setting up manufacturing Unit at Guwahati, Assam is
almost completed. As per the management,
the plant is expected to commence production by end of this year. The
proposed unit shall be entitled to tax benefits under Income Tax Act.2. Recent Developments: (as on 30 Nov'14)i) Expansion of
manufacturing capacity with new unit at Guwahati, AssamControl Print currently has its
modern production facilities located at Vasai and Nalagarh, while the
manufacturing unit at Guwahati is expected to be commissioned in the Financial
Year 2014-2015.The necessary statutory approvals
for commencement of construction have been received early this year and the
construction work for setting up manufacturing Unit at Guwahati, Assam is
almost completed. As per the management,
the plant is expected to commence production by end of this year. The
proposed unit shall be entitled to tax benefits under Income Tax Act.ii) Exploring
Opportunities in Overseas MarketCompany is setting up a Branch Office at Sri Lanka
to explore the overseas market and opportunities and to expand business
activities and operations. The Management has taken requisite steps for
obtaining necessary approvals from appropriate authorities in Sri Lanka and has
submitted the required documents to incorporate the Branch under their Laws.
However, certain statutory approvals are awaited.iii) SAP ERP and
CRM implementationAs per the annual report, Company has taken another
important initiative i.e. implementation of SAP – Enterprise Resource Planning
(ERP) and Customer Relationship Management (CRM) software and the same was
expected to go live during 2nd quarter of this financial year.SAP and CRM
implementation will facilitate company to streamline its business processes and
operations and would be beneficial in long run in managing the business process
effectively and efficiently. This will help company to improve its cash flows
from operations.

3.
Financial Performance:

(as on 30 Nov'14)

Control
Print standalone net profit rises 36.94% in the September 2014 quarter

Net
profit of Control Print rose 36.94% to Rs 51.9 million in the quarter ended
September 2014 as against Rs 37.9 million during the previous quarter ended
September 2013. Sales rose 20.31% to Rs 285.7 million in the quarter ended September
2014 as against Rs 237.4 million during the previous quarter ended September
2013

Control
Print net profit rises 39.15% in the June 2014 quarter

Net
profit of Control Print rose 39.15% to Rs 49.4 million in the quarter ended June
2014 as against Rs 35.5 million during the previous quarter ended June 2013.
Sales rose 34.59% to Rs 267.5 million in the quarter ended June 2014 as against
Rs 198.6 million during the previous quarter ended June 2013

4. Key Concerns
& Risks:

i) The Company is
still dependent on imports for raw materials and finished goods and also has to
make royalty payments and is therefore exposed to foreign exchange fluctuation
risk. Depreciation of rupee against the dollar and euro can impact the
profitability of the company.

ii) Since the last
few years the promoters have been increasing stake in the Company by issuing
convertible warrants to themselves. Recently,board of Directors of the Company have
approved conversion of 4,00,000 (four lakh) Warrants (issued on January 27,
2014 at a price of Rs. 53.23 including premium of Rs. 43.23 per share) into
equity shares of the company which resulted in increase of total paid of the
capital of the company to Rs. 9,84,82,480/- divided into 98,48,248 equity
shares of the face value of Rs. 10/- each. Though promoters are
increasing stake in the company, issuing warrants and converting to equity
shares dilutes the equity capital and finally EPS which is a concern for us.
Being a debt free company, we believe promoters must increase stake via open
market purchase route in interest of minority shareholders.

5. Saral Gyan
Recommendation:

(as on 30 Nov'14)

i) Overall
coding and marking Industry growth is closely co-related to packaging industry
growth and the manufacturing sector growth as a whole. The Indian Coding &
Marking industry has reached a level of maturity and acceptance across
applications and is dominated value-wise by 4 players with Control Print being
amongst them. Being a manufacturer of majority of the Items required for Coding
and Marking industry and having a leadership edge in technological terms,
Control Print has an advantage over other players in the industry and can
increase market share and installed base.

ii)
Looking at financial performance of the company, we can observe that company’s
EBITDA margins have improved from 5% to 22% in last 5 years (FY 09-10 to FY
13-14) with significant important in performance ratios like ROA, ROE and ROCE.

Moreover, company enjoys debt free status with surplus cash. With new
manufacturing facility at Guwahati, we expect company will continue to deliver
revenue and profitability growth above 20% going forward and maintain its high operating
margins.

iii) With
government focus to accelerate manufacturing Industry with recent initiatives
like “Make in India” campaign, company like Control Print will be the direct
beneficiary. As manufacturing becomes increasingly computerized, coded
information can guide products through distribution channels and thereby reduce
costs. Moreover, to comply with ISO & UL certification, the user companies
must have an effective product identification system in place. This provides
good business opportunity for coding companies like Control Print.

iv)
Control Print enjoys strong brand and established market position in industrial
printer segment. Association with various global leaders in all the respective
Coding & Marking technologies gives technological edge to the company. During
the last two years, Company have seen good growth in non-inkjet technology
namely Thermal Coders Transfer Overprints, Thermal Ink Codes and Laser coders.
Now, company is planning to improve its product portfolio and market presence in
these segments with upgraded models.

v)
In FY 2014, Control Print generated sales worth 2.27 crores from exports. Exports
currently contribute only 2.4% to total sales of the company. However,
considering the exports growth seen in past years and increase in manufacturing
capacity with new plant at Guwahati, we expect significant increase in revenues
from exports.

Also, cost benefits of manufacturing in India and technical collaboration with leading global players can help company to capitalize on export opportunities going forward.vi) Control Print has paid uninterrupted dividend from 2002 to
2008. However, later in 2009 there was decline in profits because of higher
operating expenses incurred by the company due to new manufacturing plant and slower
rise in demand. Hence, dividend was not paid by the company for 3 years (from
FY09 to FY11). As profitability and cash flows improved later, company has
resumed paying dividend since last 3 years and dividend payout is in the range
of 15% to 20%. Dividend yield at current market price is 1.03%.

vii)
As per our estimates, Control Print can deliver bottom line of 207.4 million
for full financial year 2014 – 15, annualized EPS of Rs. 21.5 with forward P/E
ratio of 11.3X and superior EBITDA margins (~21%) for FY 2014-15, which makes
stock an attractive bet at current market price with limited downside risk and
good upside potential for medium to long term investors.

viii) On equity of Rs. 98.48 million, the
estimated annualized EPS for FY 14-15 works out to Rs. 21.5 and the Book Value
per share is Rs. 98.4. At current market price of Rs. 243.90, stock price to
book value is 2.48

Considering recent expansion, strong operating margins with debt
free status and high growth opportunities in the business, Saral Gyan
team recommends “Buy” on Control Print Ltd at
price of Rs. 243.90 for target of Rs. 510 over a period of 12 to 24
months.

Buying Strategy:

70% at current
market price of 243.90

30% at price
range of 190-210 (in case of correction in stock price in near term)

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